Anyone involved in the life insurance industry knows that it is an industry in crisis. The industry is at a point in its lifecycle where every facet is being tested and prodded. The traditional modus operandi is under attack and the future is far from rosy. In trying to understand the current scenario, it is helpful to examine how we got to this point in order to appreciate where we are going. Generational theory provides a useful framework for this evaluation.
The life insurance industry has four generations that it is either servicing or selling to. These are the Silent generation, the Baby Boomers, Generation X, and the Millenials or Generation Y.
Silents
These people were born in the 1930s and 1940s. They are currently in retirement or close to it. The world in which they grew up gave them a world view that is conservative, respectful of authority, and not used to a lot of choice. They are comfortable with Henry Ford's dictum: "You can have any colour….so long as it is black". When it came to insurance, they took the advice of intermediaries and companies as the voice of authority. They did not challenge the advice given because it came from professionals who knew and were right.
As they have reached retirement and the performance of their products has not matched expectations, this generation's reaction has been to quietly adjust their lifestyle, and get on with life. They will generally not blame the intermediary for advice given, or the company for poor management, even though they were often the target of unscrupulous intermediaries who advised them poorly in order to generate additional commissions.
Baby Boomers
Boomers are the architects of the technology and information ages. They are visionary, prepared to challenge authority, and highly networked and inter-connected. Their decision making process generally involves gathering information and then using that as the basis for deciding. They have dreams of retiring in opulence and comfort.
When they sat with intermediaries to plan for retirement the illustrative values that were part of the ‘sales pitch' were not incidental figures. These numbers formed the basis of their decision making process. The big numbers that the illustrative values presented were highly attractive, and the factual nature of numbers meant that they were reliable and informative anchors for decision making. This is the generation that is currently suing the industry and running exposes on it. Boomers feel ripped off and lied to and they are not afraid to challenge those whom they see as at fault. The bad news for the industry is that the fight has just started. The current activities are just the rumblings of discontent that will precede the storm as more Boomers approach retirement and realise that they do not have the money they thought they would have. The relational value system of this generation also means that they have many more people to share their experiences with than the Silents did……and they will share them freely and loudly.
The Boomers and Silents are the bulk of the industry's current client base and create the majority of the embedded value by which companies are rated and valued. These generations are also largely responsible for the state within which the industry finds itself at the moment. The younger generations are the industry's future markets and present it with very different challenges to their parents and grandparents.
Generation X
They were born in the 1970s and 1980s and grew up in a world of continuous change. They are the most cynical of the generations typified by their "Whatever!!" attitude. They are young and unconcerned with death. Similarly, they view retirement as a long way off and their short-term materialism means that they don't care anyway.
The challenge to the life insurance is that they have lost the trust and respect of this generation. They do not want to compromise their integrity by selling for the industry and they do not believe the industry's product promises. The roots of this mistrust are the 30 years of ‘fleecing' that the industry did of their parents and grandparents. Xers have watched their elders' retirement planning crumble while the life insurance companies got rich. With the advent of online trading and other options Xers would rather take a chance on their own abilities than entrust their future to an ‘industry of thieves'.
To all intents and purposes, this generation is a lost generation to the industry. The flip-side however is that they are a ‘goldmine' for the company that manages to connect with them. The company that does this will succeed because they have managed to regain their trust. It was lost over decades so we should not expect to regain it overnight – the process must be enduring, consistent, and built with at least a 10 year window before evaluation. Most importantly….retooled Boomer strategies will not work. Xers are not Boomers waiting to grow up, they are a demanding and influential generation in their own right.
The Millenials
These are the oldest 14 year olds you will ever meet. The Millenials are a paradox of streetwise worldly wisdom and optimistic naiveté. They have lived relatively sheltered lives and believe the world is their oyster. They are very brand conscious and believe that they will live forever. After the cynicism of the Xers, the optimism and enthusiasm of the Millenials is refreshing. Unfortunately the implication for the life industry is that this group is thinking exclusively about life and living with no thought given to death and retirement.
If Xers are the lost generation to the industry then the Millenials represent a "Green fields" possibility. The task of the industry is to draw them in young and then reward their loyalty. They have grown up in an era where loyalty programmes are everywhere and they consequently expect short-term benefits that acknowledge and reward their medium-term loyalty and spend [they have no long-term perspective]. The challenge is consequently to design new products that effectively balance short-, medium- and long-term rewards. The good news is that X'rs will also respond well to a product like this.
For too long the Life Insurance industry attitude has been that customers must accept what is offered regardless. Any company that can afford to write off the embedded value that Xers or Millenials offer can carry on doing business as if nothing has changed. The rest, who want to survive, need to wake up, grasp the nettle…..and change! If not, the current industry cross-roads could soon resound with its death knell.